16, August 2021

How to Structure a Virtual Data Room for M&A Transactions

Virtual Data Room for M&A Transactions

Virtual data rooms (VDRs) are becoming a key part of everyday life for many businesses and organizations. They offer convenience and security when sharing sensitive documents or collaborating with other parties. 

Unfortunately, few companies are familiar with the ideal way to organize and structure their files on a VDR. Therefore, it is good to learn how to structure a VDR properly, particularly if you want to make your M&A transactions more efficient and streamlined.

Read on for more information.

Why is a virtual data room good for M&A transactions?

There are numerous reasons why a VDR is beneficial for M&A transactions.
 Virtual Data Rooms:

Are good for “housekeeping”

When you use a virtual data room, you keep all your information in one place. A unified data room makes your organization look more credible in the eyes of potential buyers. A tidy virtual data room implies that the rest of your company is equally as organized.

Expedite due diligence

When everything is clearly labeled and kept in one unified location, you expedite the due diligence process, which can help the M&A transaction run smoothly.

Offer special features

Virtual data rooms offer more unique features than typical cloud storage services. These features include detailed audit logs, digital signature availability, and version control.

Offer added security

Virtual data rooms do more than simply compartmentalize your documents; they also provide additional security and personnel-access management, keeping you in total control of all your business information.

How to set up a virtual data room for M&A transactions

A virtual data room can be set up in two ways: internally or externally. When a VDR is set up internally, the selling company will provide the VDR platform and oversee the process. When a VDR is set up externally, the company will hire a VDR provider or vendor. 
In many cases, organizations will either partially or fully outsource their VDR requirements. The steps for this process include:

  • VDR instruction: Both the client and participants involved in using the information uploaded into the VDR gather together for an instructional meeting on using the VDR (usually a seminar).
  • Needs assessment: The VDR provider assesses the client’s needs (how many files need to be uploaded, number of buyers involved, duration of the process, etc.).
  • Contract signing: A contract is signed between the client and the VDR provider.
  • VDR creation: The VDR is then created by the provider according to the client’s needs, scanning and uploading all relevant documents and information.
  • Maintenance and quality control: A VDR provider will handle issues regarding maintenance and ensure the platform runs efficiently.

How to structure a virtual data room for M&A transactions

There are several ways to structure your virtual data room:

  1. Draw a schematic of the virtual data room before you start. You may want to draw up your ideas for your virtual data room before the M&A process starts. This strategy helps you operate faster once you set up the VDR. It is also an excellent way to plan which documents you require and who will need access to the files.
  2. Assign access to relevant personnel. The more people you invite, the more transparent the process. For example, you can limit access to the casual buyer, so they only see certain information. However, if too many people have access to the VDR, you increase the chance of data leaks.
  3. Design a systemized filing system. It is important to have a transparent and efficient filing system with different files for finance, legal, and marketing documents. You should also include a master file that contains the documents required by all buyers from the outset (the standard NDA, pitch deck, non-confidential teaser).
  4. Add all relevant documents. Remember to keep your records updated. If you provide outdated information, it could hamper an M&A transaction.
  5. Engage continuously with the data room. You should consistently engage with your virtual data room. You don’t want to let the data room (digitally) gather dust! Interact with collaborators and keep the system updated. If you regularly use the virtual data room, due diligence becomes more efficient during any M&A transaction.

In summary, an effective virtual data room can make all the difference in an M&A transaction. Figuring out the right way to structure your documents and learning how to interact with buyers and collaborators efficiently can help the process achieve the best result for your business.

Top Articles